The first two parts of this series stressed the need for fractional sales agents to “engineer the train of thought” of their customers. Agents must control the direction of the sales dialogue and avoid becoming “sidetracked” by time-wasting issues. These issues include premature or lengthy discussions of differences between fractionals and. timeshares and the minutia of reservation policies and procedures.

The reason to proceed with deliberate speed through these topics is to permit sufficient time toward the end of the appointment to discuss what can be a hidden “minefield of questions” that can potentially “derail” the train. If the questions are not handled skillfully, the train will never reach its destination, Closing Junction.  So far, the train has chugged along on the express track, but ahead lies a perilous obstacle. It is a bridge several hundred feet above a riverbank where sticks of dynamite are buried. The timer is set to detonate in ninety minutes. Can “the train of thought” speed safely across the bridge before the explosion?

The “dynamite” consists of customer questions such as, “Are fractionals a good investment?” Or, “Will the property appreciate?” What makes these questions especially treacherous is that they often go unexpressed. Customers do not ordinarily volunteer that these questions are on their mind so that agents may have an opportunity to respond effectively to them.

Of course, the investment value of fractional real estate is an important consideration in deciding whether or not to make a purchase of this magnitude. When potential buyers feel uncertain, they seek to end their discomfort. They try to escape the pain of decision making by ending the appointment with, “I’ll think it over.” Needless to say, chances for arriving safely at “Closing Junction” diminish significantly as more time elapses, and doing nothing at all becomes an increasingly attractive alternative.

Sales agents must therefore assist customers in their decision making by encouraging them to express openly their doubts about the investment value of the fractional real estate.   Agents need to elicit their customers’ concerns early so that enough time remains in the appointment for an appropriate response. Agents can do this simply and forthrightly. When an agent senses that customers are withdrawing or becoming less responsive, s/he may ask:

Agent: “You seem to be troubled/uncertain about something. Could you tell me what that is?” [exploring]

After the customers have responded, the agent compliments them [supporting] for doing so and further “explores “what they have said to find out or clarify the true meaning behind their initial response [exploring]. For example:

1. Agent: “Thank you for expressing your concern.” [supporting] :”Ttell me more about that.” [exploring] Or,
2. Agent: “Thank you for sharing that.”   [supporting] “Please elaborate on that.” [exploring]

If the important “investment/appreciation” topic has not been brought out into the open, the agent may, if appropriate, consider raising it as follows:

Agent: “I understand. That’ fine. It certainly makes good sense to think this over carefully. [supporting] Please share with me what is it that you want to think about—could you perhaps be wondering about the investment potential of the property?” [exploring]

Adding to the complexity of responding to the “investment” question itself is the new Timeshare Directive to take effect in the EU on February 23, 2011. The directive, which applies equally to timeshares and fractionals, prohibits sales agents from representing that fractionals are “investments.”

So how ought sales agents respond to customers’ quite reasonable and legitimate questions about the “investment” value of the fractional property? If agents avoid answering the question, they risk losing the sale. If they answer, “Yes, it’s a good investment,” they risk jeopardizing their license.”

Following are a few suggestions for navigating a safe passage through this treacherous minefield.

Before crafting an immediate response, agents need to ease the tension in the sales office and lower the customer’s resistance to any immediate response the agent may make. This can be done by complimenting the customers for asking the question [supporting] and then clarifying what the customers have said [exploring]. For example:

1. Agent: “You raise a great point.   [supporting] What do you mean by a “good investment?” [exploring] Or,
2. Agent: “I’m glad you asked that. [supporting] Do you mean, ‘Is there an exit strategy—so that you can resell for a profit at some time in the future?’” [exploring] Or,
3. Agent: “Excellent question!” [supporting] Is appreciation over time important to you for the real estate you invest in?” [exploring + reframing—adding favorable “spin”’]

Then, the agent tosses the question back to the customers [porcupine] and encourages them to answer their own question. (There’s no directive against customers expressing their opinion as to the investment value of the property, is there?) For example:

1. Agent: “Great question!” [supporting] “Well, my crystal ball is as good as yours. What is your opinion of   the opportunity?” [porcupine + reframing]  Or,
2. Agent: “I understand where you’re coming from.” [supporting] “Given what we have seen here and all that we have discussed, what do you expect to happen down the road?” [[exploring, porcupine] Or,
3. Agent: “Well, it depends. Different people have different investment goals. [supporting] What to you makes for a good investment?” Or,
4. Agent: “I understand how you feel.” [supporting] What do you think about the future prospects for a property with this location and level of quality and service?”   [exploring + reframing]

Note: Encouraging customers to answer their own questions—with or without the constraints of a directive—is a recommended best practice in sales. People love to hear themselves talk. If they say something, it is true. If a sales agent expresses the same idea, it is suspect.

Of course, it appears reasonable—at least from my point of view—that under the forthcoming directive, agents may supply data on the past resale history of fractional property in a particular geographic area (if available) and compare it to the market performance of whole ownership properties in the same or a similar area. As appropriate, the agent can inform customers that “Fractional properties tend to perform similarly to whole ownership vacation properties in their marketplace.”

(For informational purposes, 2009 sales data from the United States indicates that fractional properties outperformed whole ownership homes in terms of holding their value. Despite the worst economy the US has weathered since the Great Depression, fractionals declined far less than did wholly owned resort properties. Fractional prices were off by about 8% vs. 20% for whole ownership properties.)

To my mind, there is a clear line of demarcation between offering customers important information that they legitimately need to make an ownership decision vs. selling a fractional as an investment. If an agent presents past sales data, that is information customers rightfully ought to have and is legitimately part of the service that an agent renders. If an agent makes promises of future appreciation, or predicts what a property will be worth at some time hence, or applies inflation indexes to the property for a certain defined holding period, regulators may define this as offering an investment.

In my opinion, the “loss” of the investment motive for fractional ownership is a net gain. Sales agents must now focus on what I believe ought to be the primary reason for purchasing a resort or urban fractional property: It’s for the enjoyment one one’s family and friends. A holiday property is the purchasers’ reward for all their years of hard work and all the strictly “financial” investments that they have made over time.

Fractional ownership properties can rarely compete with truly “100% commercial” investments such as apartment and office buildings, shopping centers, warehouses and the like. These properties generate a revenue stream year-round. Even though fractional real estate may generate rental income, it is, in most cases, more or less “seasonal” with substantial down time in many locales. Rarely, do most fractional properties cover their operating expenses, much less service mortgage debt, if any.

As opposed to commercial “cash-flow properties,” fractional real estate offers benefits that purely “by-the-numbers” investments do not. Fractional owners can enjoy their holiday property with friends and family.   At this special gathering place, they escape from their daily routine; refresh body and soul; and create precious memories to last across the generations.   These are pleasures that commercial real estate ventures can hardly provide.

It should be noted that “investment” use conflicts with use for personal enjoyment. Since holidays coincide with peak rental rates, owners who personally enjoy their property during high demand-periods would have to forgo significant rental income. Conversely, owners wanting maximum rental income would have to forgo some or all of their use during the most desirable holiday periods. Purchasing fractional real estate for maximum personal use therefore conflicts directly with a purchase for purely financial motives. You can’t totally satisfy one without sacrificing the other to some degree.

Simple mathematics shows that fractional ownership does not compete that well with strictly commercial investments. It can, however, compete well with properties for rent “to the public” from the standpoint of offering a higher quality of accommodations and amenities and superior levels of personal service. Therefore, the primary strong points of fractional real estate ownership—and in my opinion its most persuasive messages—are twofold: The unique pleasures of the vacation property and the quality of services offered there.

Finally, of course, there is “appreciation,” a significant reason that people invest in all sorts of real estate. Here, the agent is best advised to defer to the customer’s infinitely superior wisdom, perhaps with these words: “If I could predict the future, I’d be retired living in the south of France (or whatever venue strikes your fancy). What is your opinion of the future value of this property?”

Our tale has a happy ending. By using the techniques described above, the engineer speedily navigated the “train of thought” over the bridge above the river, and it arrived safely at Closing Junction. And everyone enjoyed carefree holidays in their luxury fractional vacation homes and lived happily ever after.

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David M. Disick, Esq. is a recognized pioneer in private residence club development and a thought leader in the fractional industry. He is an active consultant whose Wall Street background has enabled him to connect with an institutional source for fractional finance. Read more sales scripts in his recently published book, Fractional Vacation Homes: Marketing and Sales in Challenging Times, available from http://fractionalsandprcs.com.